Opex vs capex

Published Wednesday 30 September 2026

Table of contents

• What is opex?
• What is capex?
• How to categorise expenses as opex or capex
• Key differences between opex and capex
• How to calculate capex and opex
• Tax treatment of opex and capex in Singapore
• When to choose capex or opex
• Budgeting for opex and capex
• Track your business expenses with Xero
• FAQs on opex vs capex
• Related terms
• Learn more about opex vs capex

Key takeaways

• In opex vs capex, opex covers the day-to-day costs of running your business, such as rent and salaries. Capex is spending on assets you’ll use for more than a year, such as equipment or renovations.
• Opex is generally tax-deductible in the year you incur it. Capex goes on your balance sheet as an asset, and its cost is spread over the asset’s useful life.
• In Singapore, you claim capital allowances on qualifying capex in place of depreciation. Computers and low-value assets costing up to S$5,000 each can be written off in 1 year.
• Categorising each expense correctly from the start makes tax time simpler. It also gives you a more accurate view of your profit and cash flow.

What is opex?

Opex (operating expenditure) is the money you spend to keep your business running day to day. It covers the recurring costs you pay on a regular cycle, such as monthly or yearly.

Picture a café: the shop rent and your barista’s salary need paying whether you sell 50 coffees a day or 500. Those costs are opex, and they’re usually predictable.

Opex excludes the cost of goods sold (COGS), which is the direct cost of making or buying what you sell. It also excludes asset purchases, which fall under capex.

Common opex examples

Most of your regular business costs are likely opex. Common examples for small businesses include:

• salaries and wages for your team
• rent for your premises
• utility bills, such as electricity and internet
• insurance premiums
• marketing and advertising
• software subscriptions and cloud services
• accounting and legal fees

Many of these costs are overheads, which stay fairly steady whatever your sales. Opex appears on your profit and loss statement, and because it’s subtracted from gross profit, it directly affects your net profit.

What is capex?

Capex (capital expenditure) is the money you spend on assets that will benefit your business for more than a year. These purchases tend to be larger and less frequent, and they help you maintain or grow your operations.

Capex is recorded as an asset, and its cost is spread over the asset’s useful life through depreciation. Say you buy a S$12,000 coffee machine you expect to last 6 years: with straight-line depreciation, your accounts show S$2,000 of expense each year.

Types of capex

Capex generally falls into two categories, depending on whether you’re keeping what you have or building something new.

• Maintenance capex keeps your current operations running, such as replacing a broken oven in a bakery
• Growth capex expands or improves your business, such as fitting out a second outlet or buying extra equipment

Common capex examples

Capex purchases happen less often but cost more each time. Examples you might come across include:

• vehicles for deliveries or client visits
• machinery and production equipment
• computers and other IT hardware
• office furniture and renovations
• commercial property
• software you buy outright, rather than subscribe to

Capex appears on your balance sheet as an asset. The cash you pay shows up in the investing activities section of your cash flow statement.

How to categorise expenses as opex or capex

Most expenses are clearly one or the other, but some need a closer look. Work through these checks for each purchase:

1. Check whether you’ll use the item for more than a year
2. Check whether the cost is large enough to record as a fixed asset rather than an everyday expense
3. Check whether it’ll keep delivering value beyond the current financial year
4. Check whether it’s a repair or an improvement, since repairs are usually opex and improvements that extend an asset’s life are usually capex

If the first three checks point to a lasting asset, the purchase is most likely capex. For example, a S$150 keyboard is typically opex, while a S$4,000 laptop you’ll use for years is capex.

Some items sit in a grey area, such as a major overhaul of a delivery van. Your accountant or bookkeeper can help you classify borderline purchases correctly.

Key differences between opex and capex

Opex and capex both take money out of your business, but they show up differently in your accounts and your tax return. Here’s how capex and opex compare.

Time horizon

Opex covers short-term costs you use up within the current financial year. Capex covers assets you’ll use for more than a year.

This affects how quickly you can change course. If you overspend on marketing one month, you can adjust the next, while an equipment purchase ties up cash for years.

Impact on profit

Opex is subtracted from gross profit to work out net profit, so higher operating costs mean you need more revenue to break even. Capex reduces profit gradually, as only each year’s depreciation charge appears on your profit and loss statement.

Impact on cash flow

Opex is a steady, regular outflow, while capex often means one large payment that can reduce your working capital in one go. Checking your cash flow forecast before a big purchase shows whether you can pay for it and still cover rent and salaries.

Flexibility and planning

Most opex is essential, so rent and salaries need paying on time every month. Capex gives you more choice over timing, as you can often wait to upgrade equipment until your cash position supports it.

Opex also follows a predictable pattern, which makes it easier to budget. Maintenance capex can be urgent, though: if a critical machine breaks down, you may need to replace it straight away.

How they appear on financial statements

Opex and capex show up in different places across your financial statements. Knowing where to look helps you read your reports accurately.

• Opex appears on the profit and loss statement as an expense
• Capex appears on the balance sheet as an asset
• Depreciation appears on the profit and loss statement as a yearly expense
• Accumulated depreciation appears on the balance sheet, reducing the asset’s recorded value

On the cash flow statement, opex sits under operating activities and capex sits under investing activities.

How to calculate capex and opex

You can work out net capex using the formula from the Corporate Finance Institute (CFI). Net capex = property, plant and equipment (PP&E) this period − PP&E last period + depreciation this period.

Opex is simpler, as it’s the total of your operating expense line items. Follow these steps to calculate both:

1. Find the PP&E value on this period’s balance sheet
2. Subtract the PP&E value from the previous period’s balance sheet
3. Add this period’s depreciation from your profit and loss statement to get net capex
4. Add up every operating expense line item on your profit and loss statement to get total opex

Say your PP&E was S$80,000 last year and S$95,000 this year, and you recorded S$12,000 of depreciation. Your net capex is S$95,000 − S$80,000 + S$12,000 = S$27,000, which is what you spent on assets after any you sold.

For opex, say you paid S$48,000 in rent, S$150,000 in salaries, S$6,000 in utilities and S$10,000 in marketing. Your total opex for the year is S$214,000.

Tax treatment of opex and capex in Singapore

How you classify an expense decides when you can claim it against your taxable income. The rules below come from the Inland Revenue Authority of Singapore (IRAS) and apply for Year of Assessment (YA) 2026 and YA 2027.

Deducting opex

Under IRAS guidance on business expenses, you can deduct costs that are “wholly and exclusively incurred in the production of income”. Revenue expenses such as salaries and rent meet this test, so opex is generally deductible in the year you incur it.

If you spend S$60,000 on rent this year, you can claim the full amount as a tax deduction against that year’s income. Capital costs, such as buying fixed assets, follow a different route through capital allowances.

Claiming capital allowances on capex

For tax, IRAS gives you capital allowances on qualifying assets in place of accounting depreciation. For plant and machinery, you can claim them in two main ways.

• Section 19 spreads the claim over the asset’s prescribed working life of 6, 12 or 16 years
• Section 19A writes off qualifying plant and machinery over 3 years, or in 1 year for computers, prescribed automation equipment and low-value assets

The faster Section 19A write-off brings your tax savings forward, which can ease your cash flow in the year you buy.

Low-value assets

Small purchases get a simpler route under the same IRAS capital allowances rules. An asset costing S$5,000 or less counts as low value, and you can write off its full cost in 1 year.

Your total 1-year claim for low-value assets is capped at S$30,000 per YA. For example, you can claim a S$3,500 coffee grinder in full in the year you buy it, within the cap.

Renovation and refurbishment costs

Renovating your premises can be a big capex item, and IRAS has a specific deduction for it. Under IRAS’s Section 14N rules, you can deduct qualifying renovation and refurbishment (R&R) costs of up to S$300,000 per fixed 3-year period.

The first fixed period covers YA 2025–YA 2027, and you normally claim R&R over 3 years. From YA 2025, you can choose a 1-year write-off instead, but once you make that choice, it’s irrevocable.

Software

How IRAS treats software depends on what you’re paying for and the rights you get. The IRAS guide to software and its business expense rules set out these treatments.

• Renewal and subscription fees are generally deductible as revenue expenses
• Set-up costs are capital in nature, so they may qualify for capital allowances
• Software you have the right to use only can be written off in 1 year under Section 19A(2)
• Software you fully own, both legally and economically, is written off over 5 years under Section 19B

When to choose capex or opex

Sometimes you can choose how to pay for what you need, such as buying equipment or renting it. The right choice depends on your cash position and how long you’ll need the asset.

Before you decide, think about:

• how much cash you can spare for a large upfront payment
• how long you’ll use the asset, since ownership pays off over many years
• how quickly your needs might change, as subscriptions are easier to scale
• when you’d get tax relief, as capital allowances and opex deductions fall in different years

If buying makes sense but you’d rather keep cash in the bank, financing options such as loans or hire purchase can spread the cost.

Leasing can keep a cost in opex, depending on the lease. Under Singapore Financial Reporting Standards (International) 16, or SFRS(I) 16, most leases longer than 12 months go on your balance sheet. You record each one as a right-of-use asset and a lease liability.

This follows the IFRS 16 Leases standard, which lets you expense short-term leases of 12 months or less and leases of low-value assets as opex. If your business uses SFRS for Small Entities, simpler rules may apply, so check with your accountant.

Budgeting for opex and capex

Once you know which costs are opex and which are capex, you can plan for each in a way that suits how it behaves. Opex needs a steady monthly plan, while capex needs a longer view.

Budgeting for opex

Because opex is predictable, your past spending is a good starting point. Review the last 12 months of operating expenses and look for patterns.

Then factor in known changes, such as a rent increase or a new hire. Track your monthly budget against actual spending so you can adjust early.

Budgeting for capex

Capex is harder to predict, as it depends on equipment condition and growth plans. List the assets you plan to buy in the coming year, with estimated costs and timing, and rank them by urgency and expected return.

Setting aside a reserve for urgent maintenance capex helps you cover a sudden breakdown and keep your other plans on track.

Track your business expenses with Xero

Sorting opex from capex gets easier when every transaction is categorised as it comes in. With Xero, automated bank feeds bring in your transactions, and easy-to-read reports show where your money is going.

That gives you a clear view of day-to-day costs and bigger investments, so you can plan with confidence and be ready at tax time. Try Xero today and get one month free.

FAQs on opex vs capex

Here are answers to common questions about capex and opex.

Is depreciation opex or capex?

Depreciation is an operating expense on your profit and loss statement, even though it comes from a capex purchase. It’s a non-cash expense, because the cash left your business when you bought the asset.

Are salaries opex or capex?

Salaries are opex, as you pay them regularly to keep your business running. If you make products, wages for production staff may be counted in COGS rather than operating expenses.

Is a laptop opex or capex?

A laptop is capex, because you’ll use it for more than a year. For tax, computers qualify for a 100% write-off in 1 year under Section 19A, so you can claim the full cost straight away.

Is software opex or capex?

Cloud subscriptions, like online accounting software, are opex because you pay ongoing fees for access. Software you buy and own is normally recorded as an intangible asset and spread over its useful life through amortisation.

Can you convert capex to opex?

Swapping an owned asset for a service, such as moving from in-house servers to cloud storage, shifts spending from capex to opex. Short-term or low-value leases also stay in opex, but under SFRS(I) 16 most longer leases go on your balance sheet.

What is an example of a capex expense?

A commercial oven for a bakery is a typical capex expense, as you’ll use it for years. For tax, you could claim capital allowances on it over 3 years under Section 19A, or over its prescribed working life under Section 19.

Related terms

• Capital expenditure
• Operating expense
• Fixed assets
• Amortisation
• Balance sheet
• Cash flow

Learn more about opex vs capex

• What is depreciation?
• Financial statements
• How to calculate start-up costs
• Ways to cut business costs
• Run financial reports in Xero